Tiếng ViệtAttending recent macroeconomic seminars, the biggest and most obvious question I noticed was: how does Vietnam retain large investors, when the global minimum tax policy is over 140 national consensus, effective January 1, 2024.
The Global Minimum Tax (GMT), proposed by the Organization for Economic Cooperation and Development (OECD), aims to establish tax fairness.
For developed countries, the fact that their businesses invest abroad not only reduces domestic jobs but also reduces taxes collected. Developing countries also do not receive the full tax benefits from FDI due to tax incentives to attract investment. The global minimum tax aims to correct those inadequacies.
The minimum tax rate of 15% applies to multinational companies with a total turnover of 750 million euros (about over 800 million USD) or more in two of the last four consecutive years. That is, if the company is paying a tax rate of, say, 10%, in the country where it is investing, it will have to pay a shortfall of 5% in the country where it is headquartered.
Currently, only the EU and Korea have officially approved the application of the global minimum tax, but it can be seen that this will be a difficult trend to reverse when many other countries are also actively reviewing and adjusting their laws. to apply this provision.
In Vietnam, the common corporate income tax rate is 20%, however, through preferential policies, FDI enterprises enjoy an average actual tax rate of about 12.3%, a difference of 2.7 % of the global minimum tax. There are FDI enterprises that are also exempt from corporate income tax for a period of time, or only have to pay after making a profit.
According to the General Department of Taxation, there are currently about 335 projects in Vietnam – with a registered investment capital of over 100 million USD, doing business in the processing and manufacturing industries in economic zones and industrial zones – which are currently under construction. enjoy corporate income tax incentives lower than 15%. Among them are Samsung, LG, Intel, Bosch, Sharp, Panasonic, Foxconn – FDI “eagles” as popularly called today. The above projects account for less than 1% of the more than 36,000 valid FDI projects, but contribute about 131.3 billion USD of registered investment capital, or nearly 30% of the total FDI capital in Vietnam.
The positive aspect that the global minimum tax brings to the business community in general is narrowing the discrimination between domestic and FDI enterprises.
The minimum tax policy will also give the State a good reason to increase tax collection with the FDI “eagle”. Of course, the two sides will have to discuss other incentives to compensate for the “disadvantage” that these businesses suddenly suffer. After all, these are still world-class enterprises, each of their investment decisions can affect hundreds of satellite businesses, ancillary in the supply chain.
A headache for investment recipient countries is the story of transfer pricing. That is the case when a FDI enterprise makes a profit in Vietnam, but finds a way to convert it into the cost of imported raw materials, supplies, equipment, intellectual property, and services at an exorbitant price that no one exports. The other is the parent company in a foreign country. As a result, costs flow from the subsidiary to the parent company, reducing profits and taxes in Vietnam. Whether the global minimum tax can eliminate or limit this is still an open question.
What is of concern now is that such a global decision has a very short transition period. It is expected that, in just 8 months, many countries will start applying.
Without quick response, Vietnam will lose a large amount of tax that it could have been entitled to. But to meet the requirements of applying a global minimum tax, Vietnam needs to amend at least three laws, namely the Law on Investment, the Law on Enterprises and the Law on Corporate Income Tax, along with a series of sub-law documents. This is a “no small challenge” in the context that the process of building and amending legal documents in our country takes a long time.
Back to the original question: What does Vietnam have to keep investors? In other words, if there are no tax incentives, what will Vietnam have to attract FDI enterprises.
The business environment is the top concern of investors. The business environment here includes socio-political stability; open and transparent legal regulations and effective law enforcement mechanisms. Vietnam’s legal system still has problems, but basically the business environment in Vietnam is still a plus point, which is highly appreciated by investors.
The second factor is the readiness of the supply chain, especially satellite businesses and supporting industries. Samsung’s efforts to build an R&D center and a chain of satellite businesses in Vietnam or the shift of major Apple vendors help Vietnam’s electronics support industry change. The auto industry also saw a breakthrough from domestic investors such as Thaco, Thanh Cong, and VinFast. But industries such as textiles, footwear, furniture… do not have many competitive advantages.
Logistics is the third factor. Not only has a convenient location on the world’s busy maritime and air routes, Vietnam has made many improvements in infrastructure and cargo handling capacity. Logistics plays an important role in making the country become one of the 20 largest countries in terms of international trade. This is a plus point to retain and attract investors.
Next is the issue of human resources. Cheap human resources are still needed, but in the context of strong digitalisation, high-quality human resources are more needed, especially middle-level management personnel. The integration process has created a human resource that is adaptable to international business, but still does not meet the needs. Overall, this is a moderate advantage.
Fifth, adapting to the requirements of the future, first of all the requirements of green supply chains and sustainable trade. The fact that Vietnam is committed and is making a strong transition to renewable energy will be another plus, but the process needs to be accelerated.
However, it is not only Vietnam that has changed. The surrounding countries such as Laos, Cambodia, Myanmar, and Bangladesh are also rising very quickly. Therefore, being sober, properly assessing the problem, and promptly removing obstacles are necessary solutions at this time to adapt to the new global minimum tax regulation, without causing too great changes to the environment. investment market and import-export activities – where FDI enterprises account for 70% of total turnover.
Source: Vnexpress
